Dividends & Tech Stocks: Silicon Valley All Grown Up

Is it possible to get both risk and reward in one sector? If you’re talking about the tech sector, the answer just may be yes.

The tech sector now has higher dividend payouts on a percentage basis than any other large-cap sector in the S&P 500, according to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices. Cisco Systems’ boosted dividend, announced last night, propelled tech to the top spot, claiming the ranks from the consumer-staples sector.

Technology accounts for 14.22% of all dividends in the S&P 500, Silverblatt says. Consumer staples are second, followed by financials, health care and industrials.

Technology is typically characterized as a volatile, high-flying cyclical sector, which tends to see prices swing more wildly than more defensive-minded sectors. But now the tech sector’s dividend payouts combined with its growth rates could make it even more attractive.

In tech, 41 of the 71 stocks within the sector pay dividends, with the average payer yielding 2.02%.

Technology has also performed quite well in the third quarter, gaining 7%. It is the best-performing sector over the past 30 days. That could be yield-hungry investors seeking dividends.

“You may not be buying [tech] for yield, but it’s a nice bonus, and over time dividends are critical,” Silverblatt said in an email.

Dividend-paying stocks typically benefit in a slow-growth economic environment, providing cushion for investors during times of turmoil. The dividend trade has boomed in recent years amid continued concerns about the U.S. economy, Europe’s debt woes and China’s slowing economy.

There are 402 companies within the S&P 500 that are now paying dividends, which is the most since December 1999.

Apple’s dividend is a big reason why tech jumped up the leader board. Earlier this year the iPhone maker instituted a regular payout for the first time in more than a decade. Its large size made it one of the biggest dividend payers in the S&P 500, placing it alongside Exxon Mobil and AT&T.

Late Wednesday, Cisco said it would increase its quarterly dividend to 14 cents a share, which is 75% higher than its current payout and more than double its first-ever dividend of 6 cents, implemented a little more than a year ago.

Silverblatt said there is a history of stocks initiating dividends at lower yields, and then increasing them within a year.

“The thought is that from zero to anything is the big bang, so hold some back, and then increase it again — proving that you were right to do it to begin with, and that you are doing so well now than you can increase it again,” he says.

–Alexandra Scaggs contributed to this post.

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Comments (1 of 1)

This sounds more impressive than it really is. From the article: "Technology accounts for 14.22% of all dividends in the S&P 500, Silverblatt says. Consumer staples are second, followed by financials, health care and industrials."

This is somewhat meaningless without knowing the sector weights in the index. Tech is the largest at 20.2% while staples is fifth (of 10) at 11.2%. So it should not be surprising that tech pays the largest share of dividends. In fact, tech is not even carrying its weight. No denying the recent trend toward dividends in tech, though. Makes you think their management must not see many good opportunities at the corporate level, or just doesn't care for the current tax and regulatory environment.

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